Quality and Reliability in Financial Reporting
Publicly-traded companies have an obligation to provide accurate and reliable financial statements to current and potential investors. Investors and others users of financial statements depend on this information to make investment and business decisions (McEwen, 2009). The Sarbanes-Oxley Act (SOX) and the Securities and Exchange Commission (SEC) acknowledge the importance of truthful, material, and dependable financial reporting. Based on SOX provisions and SEC reporting requirements, this paper discusses the significance of ensuring quality and reliability in financial reporting. The paper specifically focuses on the role of the board of directors and the chief executive officers (CEO) in ensuring the reliability of financial statements, strategies a CEO can use to ensure quality and reliable financial reporting, and how corporate management can increase investor confidence in financial reporting. Attention is also paid to possible consequences to a publicly traded company due to unreliable financial reporting as well as the effectiveness of the Sarbanes-Oxley Act in ensuring quality and financial reporting.
The Sarbanes-Oxley Act was introduced in 2002 in an attempt to enhance corporate accountability. The legislation was enacted in the wake of the infamous Enron scandal, a scandal that revealed glaring shortcomings in corporate accounting (Holt, 2008). SOX offers comprehensive guidelines that publicly traded companies must comply with in financial reporting. Publicly quoted firms have a duty to protect the interests of shareholders and investors by reporting accurate and reliable financial information. Further financial reporting requirements are provided by SEC, which obligates publicly listed firms to periodically file financial reports with the commission. The commission requires public firms to implement strong internal controls to ensure quality and reliable accounting.
As per SOX and SEC guidelines, the board and the CEO of a publicly traded company have an instrumental role to play in ensuring quality and reliable financial reporting. More specifically, the board...
References
Bragg, S. (2009). Accounting control best practices. Hoboken: John Wiley & Sons.
Holt, M. (2008). The Sarbanes-Oxley Act: Costs, benefits and business impacts. New York: Elsevier.
McEwen, R. (2009). Transparency in financial reporting: A concise comparison of IFRS and US GAAP. Great Britain: Harriman House Limited.
Monks, R., & Minow, N. (2011). Corporate governance. 5th ed. Hoboken: John Wiley & Sons.
Vallabhaneni, S. (2008). Corporate management, governance, and ethics best practices. Hoboken: John Wiley & Sons.
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